M/s. Ram Commodities Pvt. Ltd, Maharashtra V. ITO, Ward-3(1)(3), Ahmedabad

ITA 2393/AHD/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 7303 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-08-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2015-2016
• Appeal Filed On: 10-12-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MEHUL K. PATEL
• Keywords: Earning of tax free income; Proportionate interest; Rule 8D
• Section: 14A; 143(2)

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD - BENCH SMC BEFORE SHRI RAJPAL YADAV, VICE-PRESIDENT AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ./ ITA NO.2393/AHD/2018 ASSTT.YEAR 2015-16 M/S.RAM COMMODITIES P.LTD. 375, 379 WADA SHAHAPUR ROAD WADA, THANE 421 303. VS. ITO, WARD-3(1)(3) AHMEDABAD. / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI MEHUL K. PATEL, AR REVENUE BY : SHRI R.R. MAKWANA, SR.DR ! / DATE OF HEARING : 12/08/2021 '#$ ! / DATE OF PRONOUNCEMENT: 17/08/2021 %& / O R D E R PER RAJPAL YADAV, VICE-PRESIDENT ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST O RDER OF THE LD.CIT(A)-9, AHMEDABAD DATED 12.9.2018 PASSED FOR A SSTT.YEAR 2015- 16. 2. ONLY ISSUE RAISED IN THIS APPEAL IS THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING DISALLOWANCE OF RS.5,18,928/- UNDER SECT ION 14A READ WITH RULE 8D OF THE INCOME TAX ACT, 1961. 3. AS THE FACTS EMERGE FROM THE IMPUGNED ORDERS OF THE REVENUE IS THAT THE ASSESSEE HAS FILED ITS RETURN OF INCOME ON 29.9.2015 DECLARING ITA NO.2393/AHD/2018 2 TOTAL LOSS AT (-)RS.8,921/- THE CASE OF THE ASSESS EE WAS SELECTED FOR SCRUTINY ASSESSMENT BY ISSUANCE OF NOTICE UNDER SEC TION 143(2) OF THE ACT. DURING THE SCRUTINY ASSESSMENT, IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAS DEBITED A SUM OF RS.5,27,726/- UNDER T HE HEAD FINANCE COST (INTEREST EXPENSES) IN THE PROFIT & LOSS ACCOU NT. THE LD.AO DOUBTED THE SAME, BECAUSE HE NOTICED FROM THE BALAN CE SHEET THAT THE ASSESSEE HAD LONG TERM BORROWING OF RS.21,90,000/- AND NON-CURRENT INVESTMENT FOR THE YEAR UNDER CONSIDERATION WAS AT RS.4,90,79,675/- AS AGAINST PRECEDING YEAR OF RS.7,35,30,140/-, AND THA T THE ASSESSEE SOLD SHARES OF SUNSHINE PAPER TECH P.LTD. FOR RS.2,44,50 ,465/- ON NO-PROFIT NO-LOSS BASIS, WHICH ACCORDING TO THE AO WAS MADE B Y THE ASSESSEE OUT OF BORROWED FUNDS BEARING HUGE INTEREST, BUT NOT EA RNED ANY PROFIT FROM THE INVESTMENT. A SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE IN THIS BEHALF, AS TO WHY PROPORTIONATE INTEREST EXPENSES S HOULD NOT BE DISALLOWED UNDER SECTION 14A OF THE ACT. IT WAS EX PLAINED INTER ALIA BY THE ASSESSEE THAT THE INTEREST EXPENDITURE WAS INCU RRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSE, AND THE INVES TMENT MADE IN SUNSHINE PAPER TECH P.LTD. WAS A STRATEGIC INVESTME NT AND DID NOT CALL FOR DISALLOWANCE UNDER SECTION 14A OF THE ACT. THE LD.AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE AND HELD THAT ASSES SEE HAS DIVERTED INTEREST BEARING BORROWED FUNDS FOR MAKING INVESTME NT AND INCURRED HUGE INTEREST EXPENSES, AND THEREFORE DISALLOWANCE TO BE MADE AS PER PROVISIONS OF SECTION 14A OF THE ACT. ACCORDINGLY, THE LD.AO MADE DISALLOWANCE OF RS.5,18,928/- BY APPLYING PROVISION S OF SECTION 14A READ WITH RULE 8D. AGGRIEVED BY ORDER OF THE LD.A O, THE ASSESSEE WENT IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY, BUT DID NOT SUCCEED; HENCE, THE ASSESSEE IS NOW BEFORE THE TRIBUNAL. 4. BEFORE US, THE LD.COUNSEL FOR THE ASSESSEE REITE RATED THE SUBMISSIONS, AS WERE MADE BEFORE THE REVENUE AUTHOR ITIES. HE FURTHER RELIED UPON THE JUDGMENT OF HONBLE GUJARAT HIGH CO URT IN THE CASE OF PCT VS. HARSHA ENGINEERING P.LTD., TAX APPEAL NO.54 7 OF 2019 DATED ITA NO.2393/AHD/2018 3 5.8.2019 TO CONTEND THAT WHEN THE ASSESSEE HAD NOT CLAIMED ANY EXEMPTED INCOME, THEN PROVISIONS OF SECTION 14A WOU LD NO APPLICATION. HE PLACED ON RECORD COPY OF THE DECISION OF HONBLE GUJARAT HIGH COURT CITED (SUPRA). ON THE OTHER HAND, THE LD.DR SUPPORT ED ORDERS OF THE REVENUE AUTHORITIES. 5. HEARD BOTH THE PARTIES AND GONE THROUGH THE IMPU GNED ORDERS AND ALSO MATERIAL AVAILABLE ON RECORD. WE FIND THA T THE REVENUE AUTHORITIES MADE THE IMPUGNED DISALLOWANCE ON THE G ROUND THAT THE ASSESSEE HAS NOT ALLOCATED ANY EXPENDITURE TOWARDS THE EXEMPT INCOME EARNED FROM THE INVESTMENTS. HOWEVER, THE CLAIM OF THE ASSESSEE IS THAT WHEN THE ASSESSEE HAS NOT EARNED ANY EXEMPT IN COME AND NO CLAIM HAS BEEN MADE THEREOF, THERE IS NO QUESTION O F DISALLOWANCE UNDER SECTION 14A OF THE ACT. THIS ISSUE HAS BEE N SETTLED NOW BY VARIOUS BENCHES OF THE ITAT AND ALSO HONBLE HIGH C OURT TO THE EFFECT THAT WHEN NO EXEMPT INCOME CLAIMED BY THE ASSESSEE, THERE IS NO APPLICATION OF SECTION 14A OF THE ACT AND CALCULATI ON OF DISALLOWANCE UNDER RULE 8D. THE CASE LAW CITED BY THE LD.COUNS EL FOR THE ASSESSEE IN THE CASE OF PCIT VS. HARSHA ENGINEERING LTD. (SUPRA ) SQUARELY COVERS THE CASE OF THE PRESENT ASSESSEE. IT IS HELD BY TH E HONBLE GUJARAT HIGH COURT THAT SECTION 14A OF THE ACT CAN BE INVOKED ON LY IF THE ASSESSEE SEEKS TO SQUARE OFF THE EXPENDITURE AGAINST THE INC OME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. IN TH E CASE OF CIT VS. CORRTECH ENERGY LTD., 372 ITR 97 (GUJ) HONBLE GUJA RAT HIGH COURT HAS HELD THAT IN THE ABSENCE OF ANY EXEMPT INCOME BEING CLAIMED BY THE ASSESSEE PROVISIONS OF SECTION 14A R.W.R 8D COULD N OT BE INVOKED. IN THE INSTANT CASE, UNDISPUTEDLY THE ASSESSEE HAS NOT EARNED OR CLAIMED EXEMPT INCOME, AND IN SUCH CIRCUMSTANCES, THE PROVI SIONS OF SECTION 14A CANNOT BE INVOKED. FINDINGS OF BOTH THE REVEN UE AUTHORITIES ARE NOT IN ACCORDANCE WITH LAW, AND THEREFORE, THE SAME ARE NOT MAINTAINABLE. WE ALLOW THE CLAIM OF THE ASSESSEE A ND DELETE THE ITA NO.2393/AHD/2018 4 IMPUGNED DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D. THUS, GROUND OF THE APPEAL OF THE ASSESS EE IS ALLOWED. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . PRONOUNCED IN THE COURT ON 17 TH AUGUST, 2021 AT AHMEDABAD. SD/- SD/- (WASEEM AHMED) ACCOUNTANT MEMBER (RAJPAL YADAV) VICE-PRESIDENT AHMEDABAD; DATED 17/08/2021